There was a recent article in Bloomberg, which talked about RBNZ’s recent moves to protect financial stability, particularly in comparison to the Federal Reserve.

New Zealand was not the first to expand the use of prudential controls to blunt debt growth. It is inevitable that targeted interventions create reactions from the targeted rather than spreading the pain around by an interest rate hike, and who cares about a few exporters suffering with higher exchange rates.

The word is the LVR restrictions are being effective, perhaps too effective in areas that are no contributing to the asset price bubble. Collateral damage needs to be avoided or we run the risk of the antibodies triggered by the prudential restrictions impacting good policy – the policy bombs need to be smart.

LVR restrictions in the regions and for new builds make no real sense and should be seeing some policy attention.